Scotland's councils have been thrown into turmoil because the new Asylum and Immigration Act, which requires councils to house asylum-seekers, conflicts with the Government's policy of housing stock transfer. The Observer can reveal that so far only 1,000 places have been identified for asylum-seekers, yet Home Office estimates suggest up to 6,000 may need to be housed in Scotland.

The new Asylum and Immigration Act becomes law on 1 April. It means a central agency in Croydon can assign refugees to any council in Scotland. The Home Offices estimates it will have to find temporary homes for 60,000 refugees throughout the UK. Up to 6,000 may head north of the border.

In response to the Asylum Act, the Convention of Scottish Local Authorities has set up the Scottish Consortium, which aims to co-ordinate Scotland's response to the demand for refugee places. So far eight councils have joined: Glasgow, Edinburgh, Aberdeen, Aberdeenshire, West Lothian, Fife, North Lanarkshire and Inverclyde.

The Observer asked all the councils in the consortium how many refugees they could host. Glasgow was the only authority able to give a precise answer. It is offering 1,000 places. All the other councils had yet to identify enough suitable properties.

The consortium also represents the Scottish Federation of Housing Associations, the Chartered Institute of Housing, the YMCA and the Scottish Refugee Council. Only one housing federation in Scotland has offered places. 'We have never dealt on this scale outwith a war situation,' said one voluntary organisation source. The YMCA has offered 150 places.

The demand for suitable properties has exposed the crisis in Scottish public housing. The right-to-buy policy introduced in the 1980s by the Conservative Government removed good quality housing from the public stock. Below-inflation annual increases to local government from central government have meant a degradation of the housing stock.

'Councils already have long waiting lists and suitable housing is not available,' says David Henderson, head of policy at the Convention of Scottish Local Authorities. A council official working to find places for refugees said: 'There is just no elasticity in budgets. There is a willingness to house asylum seekers but the quality of buildings simply isn't there.'

The Government's policy to improve public housing stock is to transfer it to private hands. Seven Scottish councils are considering stock transfer proposals. They are Glasgow, Aberdeen, Scottish Borders, Orkney, Shetland, Western Isles and Dumfries and Galloway.

'Because of stock transfer, councils cannot guarantee they can provide suitable housing in the future,' says David Henderson of Cosla.

Home Office directives to local authorities say 60 per cent of refugee housing should be provided by the private sector. However one source said: 'The accommodation offered is not up to scratch. Redundant factory buildings are being offered and some people are trying to get out of community care and switch to refugees.' The Asylum Act will cut the financial support for each refugee. Currently, the Home Office pays £165 per person each week. Under the new regime individuals will get £150, and families will get £220 per week.

'That money has got to pay for everything. Rent, food and all the Consortium's costs in placing the person. That's why private landlords aren't coming forward, there's no money in it,' said one source.

The Scottish Consortium is set to meet on 18 January, when organisers hope to identify more properties. The Home Office says it is confident enough accommodation will be found in time. It estimates that of the 64,000 asylum seekers expected, only 35,000 may need homes. That would mean Scotland would need only 3,500 places.

The Asylum and Immigration Act, which had a stormy ride through the Commons, has also provoked an outcry in Holyrood. Apart from reducing the financial support to refugees, it replaces cash handouts with vouchers and cuts across current Scottish legislation, such as the Social Work Scotland Act.

A motion calling for increased financial support for Scottish local authorities, a continuation of cash support instead of vouchers, and for Holyrood to be consulted on the legislation has attracted signatures from Labour, Liberal Democrat and Nationalist MSPs.

The Observer understands the MSPs behind the motion, Labour's Cathy Jamieson and the SNP's Shona Robison, have received preliminary legal advice that Holyrood could change the UK Act. The draft legal opinion says Holyrood could change any Westminster legislation that has a 'consequential' impact on Scottish legislation. The MSPs are awaiting more legal advice before taking the matter further.